Could The SEC Be Changing Its Mind On Labeling Digital Assets

On May 3rd, the United States SEC (Securities and Exchange Commission) took a small step back in regulating the crypto sector by removing what would have been its first official definition pertaining to digital assets from its latest hedge fund rule.

The definition was initially included in the 2022 proposal to overhaul mandatory disclosures for hedge funds, but it was removed in the final rule approved by the commissioners. The agency stated that the commission and staff are continuing to consider this term and are not adopting digital assets as part of this rule at the time.

Although the SEC continues without a formal definition for digital assets, it remains a constant topic in the speeches of Chair Gary Gensler and other SEC officials. The agency has made other recent policy moves to include crypto into existing rules.

The original proposed definition for digital assets in the latest hedge fund rule was not extensive or controversial, describing it as using distributed ledger or blockchain technology and including so called virtual currencies, coins, and tokens. Unsurprisingly, the industry has often criticized the SEC for not defining digital assets and for withholding regulatory clarity, which has led many investors to take their business elsewhere.